How Healthy is Michigan, Fiscally?

Date: August 02, 2017



Compared to rest of the U.S., Michigan ranks relatively low in the quality of its fiscal health, at 36th among the 50 states, according to a Mercatus Center report.

A state’s fiscal health can advantage or overwhelm small businesses. It serves as a pulse on whether a state can appeal to new business, how much a state taxes, and what services a state provides, among other things.

While the study evaluates a state’s financial health by its short- and long-term debts, and fiscal obligations, it was written before recent action taken by the legislature and the governor and does not reflect these important changes.

On July 13 of this year, Governor Snyder signed NFIB backed Senate Bill 401 into law as Public Act 92 of 2017. This law represents a major step forward in addressing the unfunded liabilities of generous government employee benefits that has been one of the primary reasons why many states, including Michigan, have struggled with long term debt burdens. The legislation will address the ongoing liability of the state’s teacher pension system (Michigan Public School Employees Retirement System – MPSERS), by encouraging newly hired teachers to opt into a 401(k)-type defined contribution plan.

The Reason Foundation has called the legislation “…a first of its kind, innovative pension reform bill that will provide a new set of retirement choices for state teachers and cap the growth of liabilities in the state’s current, structurally flawed retirement plan.

Legislative leadership has also indicated that dealing with another looming long-term debt crisis – Other Post Employment Benefits (OPEB) or pensions and healthcare for government retirees in financially struggling municipalities – is on their radar screen for action this session as well. If these cities do not have the money to pay for these benefits, the state (taxpayers) will get stuck with the bill.

Michigan small business owners support efforts to bring some common sense to expensive government pensions by moving them from the unsustainable defined benefit model to the defined contribution method used in the private sector. With the changes recently made, and the upcoming efforts to address future pension challenges, Michigan will likely fare better than many states in the next round of fiscal health rankings.

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